The debate about whether to hire an active fund manager to beat the market or use a passive index fund is over

Writing in Saturday’s WSJ column “The Intelligent Investor,” Jason Zweig reviews a recent article by the “dean of the investment-management industry” Charles Ellis, who claims in the July/August issue of the Financial Analysts Journal that the “active vs. passive investment debate” is largely over. After their high trading fees and expenses, “active managers are no longer able to earn their keep,” and therefore most investors will get higher returns and pay lower fees with index funds. Ellis expects that the triumph of index investing over active fund management is generating a “wave of creative destruction” that will put many portfolio managers out of business.

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RE: HOBBY LOBBY - 401(k) plans are directed and invested by employees, not by employers

There’s been an absurd story from Mother Jones making the rounds this week.  Authored by Molly Redden (who has never signed the front of a paycheck, but does “spend too much time cooking and watching television,” according to her bio) and echoed here on Forbes.com by Rick Ungar, the argument is that Hobby Lobby can’t have religious convictions and a regular 401(k) plan for their employees at the same time.

Hobby Lobby (which is a closely held corporation with a few family owners) is suing the Obama Administration over Obamacare’s requirement that Hobby Lobby pay directly for drugs which can and do lead to early pregnancy abortions.  Being a material and proximate cooperator in such an action violates the business owners’ deeply-held religious views protected by the First Amendment to the Constitution.

Apparently, this also means that Hobby Lobby can’t have a 401(k) plan for their employees.  Why?  Well, according to Redden and Ungar, the Hobby Lobby owners are religious kook hypocrites.  The company 401(k) plan has investments which themselves invest in companies that make the abortion drugs.

This is a ridiculous argument for several reasons, all of which would be obvious to Redden and Ungar if they had ever run a business in their lives:

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So why are all of these very prominent executives cashing out all of a sudden?

The Big Dogs On Wall Street Are Starting To Get Very Nervous

That is a very good question.

Meanwhile, some of the most respected names on Wall Street are warning that it is time to get out of the market.

It's now legal in the US for any financial institution to steal customer funds...and the customers have ZERO CLAIM TO THEIR OWN FUNDS once they are in the custody of the financial institution!

RED ALERT: It's Open Season on All Customer Funds

Posted by Ann Barnhardt, - August 10, AD 2012 3:33 PM MST

The NFA is collusion with the Banksters, government and judiciary have achieved their goal. The entire concept of "customer segregated funds" is officially, completely, legally dead.

Guys, it is OVER. I know that many of you are still cowering in normalcy bias, unable to deal with reality, unable to face the world as it is, but you have GOT to snap out of it. The marketplace is DESTROYED. You CANNOT be in these markets. All legal protections are now officially gone.

Do you remember how I told you about the Ponzi scheme that imploded in 2007 called "Sentinel Management Group" that stole over $500 million in customer funds? The NFA was the auditing regulator of Sentinel, and the NFA admitted after the Sentinel Ponzi imploded that they signed off on their audits even though the NFA claimed not fully understanding Sentinel's books or accounting methods. In other words, the NFA didn't really audit Sentinel at all - they just PRETENDED to audit them, drew up some forms, had some robosigners sign off, and then just hoped that when the shit hit the fan, everyone in the industry would be so terrified of the NFA that no one would hold the NFA accountable for their criminal malfeasance - or even talk about it.

Sentinel took customer segregated money and fraudulently used it as the collateral on a loan from Bank of New York Mellon for $312 million to fund their own in-house proprietary trading operations. When the Sentinel Ponzi collapsed, BNYM sued to go to the front of the line of creditors - ahead of the customers of Sentinel whose money was fraudulently used as collateral, which has now been "linguistically sanitized" into the word "hypothecated".

The federal appeals court ruled yesterday that not only does BNYM stay at the front of the line, but that using customer segregated funds as collateral is NOT a crime, and that co-mingling customer segregated funds with proprietary funds is NOT fraud.

Here is the Reuters piece.

Read this quote from the ruling, which is, in essence, the entire financial market paradigm being guillotined:

That Sentinel failed to keep client funds properly segregated is not, on its own, sufficient to rule as a matter of law that Sentinel acted ‘with actual intent to hinder, delay, or defraud' its customers.

U.S. Circuit Judge John D. Tinder

What this means is that even if Jon Corzine is somehow dragged into court by private citizens, because you know damn good and well that the Justice Department will never, ever touch him, Corzine now has a legal precedent, likely from a bribed or otherwise coerced Federal Appeals Court, explicitly stating that an FCM can use customer deposits to pay its debts, and that the customers themselves are subjugated and have basically no legal right to their own monies, no matter what the law says, or what legal assurances, claims or guarantees are made to that customer about their funds held with an FCM or any other brokerage or depository institution. The "secured" party at the front of the line will always be the mega-bank who made the fraudulent loan using the stolen customer funds as collateral.

In other words, all customer funds in the United States are now the legal property of JP Morgan, Goldman Sachs, BNYM, or whichever megabank is the counterparty on the loans the FCM or depository institution takes out in order to fund its mega-levered proprietary in-house trading desks.

For the love of God, I don't know what more there could possibly be to say to snap you people out of your normalcy bias trance. You have GOT to get ALL MONIES out of the financial system NOW. This ruling sets precedence for every depository institution, not just futures brokerages. It is now legal in the United States for any financial institution to steal customer funds, borrow money against those funds for the uber-levered proprietary trading use of the financial institution, and the customers have ZERO CLAIM TO THEIR OWN FUNDS once they are in the custody of the financial institution.

The court has ruled that once your money passes out of your PHYSICAL POSSESSION, and I mean PHYSICAL possession, it is no longer yours, and you have no legal claim or legal recourse to it when it is stolen. This includes BANK ACCOUNTS. Money in a bank is in the possession of the BANK, not you. Do you comprehend this? The entire system is utterly devoid of any integrity or genuine security and is breaking down catastophically before our very eyes. You HAVE to comprehend that your money sitting in an account is no longer legally yours. You have to force your brain to process and comprehend this, no matter how incomprehensible it may seem. IT IS OVER. This is Marxist hell. We have arrived.

This ruling and precedent will be used by every brokerage, every bank, every insurance company and every pension fund to deny you your money when the financial system finally collapses, be it on Monday, or be it two years from now.

DO YOU UNDERSTAND?

You have GOT to GET OUT.

And all of this goes straight back to the criminal mafia that is the National Futures Association, and the fact that they have not actually been auditing those firms who were in the "cosa nostra", and allowing Ponzi schemes to operate with full bureaucratic protection for decades. Sentinel. PFG Best. The legal precedent enabling this protection racket and blatant fraud and thievery is fully in force, and what Corzine did at MF Global is now legally PROTECTED.

This is ecomonic treason.

Treason is a capital offense, meaning that the death penalty is fully justified, warranted and on the table, should the day ever come when a Second American Republic is established, and with it the re-establishment of the rule of law and justice in this land.

UPDATE: Yes, the South Park "And . . . It's Gone" clip is now 100% factual. Here it is. It is clean. No dirty language, just the cold, hard reality of our dead civilization.

If an asset is not FULLY liquid and available to you, then it isn't really yours at all

On 401ks

Posted by Ann Barnhardt - August 3, AD 2012 7:26 PM MST

 

401k plan of attack: 
 
1. STOP MAKING CONTRIBUTIONS if you haven't already.

2. Liquidate it. Pay the "penalty". Would you rather pay a penalty or have it all stolen? Or possibly replaced with a "government savings account" comprised of Treasury paper which will probably default or be confiscated long before you are ever allowed to "tap it", and will NOT be able to be passed to your heirs should you croak, but will instead be resorbed back into the collective? Oh, and don't bother whining to me about the "tax consequences". Paying income taxes to this satanic baby-killing Christ-hating government is now, absolutely MORTAL SIN. Why, why, why would you pay taxes?

3. If you can't liquidate it, take out a loan on the balance. Take out the maximum possible loan, and then set up the repayment schedule on the longest possible term.

Now, let's talk about all of you out there who are not permitted by your employer to liquidate your 401k. That decision rests with the PLAN ADMINISTRATOR, who is your employer, be it an individual or a board.

What kind soulless, psychopathic monster would refuse to let their own employees have access to their own money? What POSSIBLE reason could there be for a business owner or a board to refuse to fill out a few forms, sign at a few documents and just let people have their own money?

If your employer will not let you out of your 401k, you need to sit down and think long and hard about who you are working for, and why you are working for them, because they are, by definition, bad people.
Finally, what lesson can we learn from this? How about this: If you don't have access to something, if you cannot take physical possession of it, if all you have is someone telling you that they are taking care of your money, which you cannot touch or have access to - THEN IT ISN'T YOUR MONEY, AND IT NEVER WAS. In short, you have been conned.

If your employer won't let you liquidate your 401k, that means that your employer has CONNED YOU by telling you that they were paying you a wage of X, when in reality it was less than X by the amount of your 401k contribution amount. Go sit down and figure it out. Back out your 401K contributions off the top of your pay as if they never existed. THAT is your actual wage, if your employer refuses to let you out. Would you have ever agreed to work for that wage?

For those of you who come out on the other side of this collapse and war, you must always remember that if an asset is not FULLY liquid and available to you, then it isn't really yours at all, and you have to assume that all such arrangements are nefarious and must be rejected.

Democratic National Committee chair Debbie Wasserman Schultz caught doing what she accuses others of doing

Dem. Chair Invested in Swiss Banks, Foreign Drug Companies, and the State Bank of India

Disclosure forms reveal that Democratic National Committee chair Debbie Wasserman Schultz, a member of Congress from Florida, previously held funds with investments in Swiss banks, foreign drug companies, and the state bank of India. This revelation comes mere days after the Democratic chair attacked presumptive Republican presidential candidate Mitt Romney for holding money in Swiss bank accounts in the past.

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The Corruption of America

CitizenWells: The following are exerpts from a well written article by Porter Stansberry on many of the economic and social woes of America. The full article is worthy of your time.

A CERTIFICATE with my NAME ON IT?

On Sychophants, Process Servers & Decoupling
Posted by Ann Barnhardt - December 15, AD 2011 9:38 PM MST

1. Corzine and Abelow testified again before the House Financial Services committee, and it was another nausea-inducing spectacle. Today's questioning was actually WORSE, because Terry Duffy had lobbed the committee a grapefruit on Tuesday regarding Corzine's knowledge of the customer seg funds being raided and sent off to Europe. (OF COURSE HE KNEW. BACK OFFICE TREASURY DATAPUNCH CLERKS DON'T SEND CUSTOMER SEG FUNDS TO EUROPE OR ANYWHERE ELSE OF THEIR OWN VOLITION.) But, of course, none of the congresscritters were even remotely smart enough to ask about any of that. In fact, one chick congresscritter was fawning over Corzine so hard, I honestly thought that she was going to come down off the dais, crawl in Corzine's lap, push back his greasy mullet, and start blowing in his ear. Her line of questioning - if you can call it that - was along the lines of, "Mr. Corzine, is it possible that no one within the company notified you of any problems because you are so brilliant and awesome and thus people find you intimidating?"

2. The best part of the whole day was Corzine getting served with a big ol' lawsuit as he walked out of the hearing room during the break. A commodity trading advisory service who is hung out to dry for into the NINE FIGURES is suing the top 20 or so executives in the company. AWESOME. Here's the video:


3. Finally, a very simplistic explanation of how the cash commodity markets are soon going to decouple from the futures markets. This is a little complex, but stay with me. I think this is important to understand because none of us who have lived our whole lives in the U.S. have ever seen a market disintegrate.

The threat (or promise) of delivery upon expiration is what keeps the futures markets tethered to the cash markets. Up until now, if an unreasonably wide spread between the futures price and the underlying physical commodity market got too out of whack, a process called "arbitrage" would kick in. Arbitrage is when a party simultaneously buys and sells on two separate but related markets in order to capture an inefficient spread between those two markets.

I'm going to use precious metals as my example commodity because there are alot of metals guys reading this, and because the metals markets will be the big tell in term of when decoupling and thus total futures market disintegration is upon us. But these examples apply to all of the physical commodities.

Let's say that the physical silver market is trading far lower than the silver futures price. This is what is called a WEAK BASIS. The BASIS is the relationship between the cash market and the futures market and is very simply defined as (CASH minus FUTURES). If cash silver can be bought at $25.00 per ounce and the futures are at $30.00 per ounce, the cash is $5.00 under the futures. When cash is under the futures, this is called a WEAK basis.

Up until now, what would a metals trader do? In very simple terms, he would buy the cash silver at $25.00 per ounce and then simultaneously sell the futures at $30.00. Because he has short-sold the futures, he could hold the contract to expiry and then deliver the $25.00 cash silver he bought to make good on the contract and receive his $30.00 price. So his simple net profit would be $5.00 per ounce. As many traders saw this spread and simultaneously executed this same strategy of buying the cash and selling the futures, what effect would this have? Right. It would cause the cash-futures spread to move back in toward convergence by pushing the futures price down (lots of sellers) and propping the cash market up (lots of buyers).

Now the opposite scenario: a STRONG basis. Let's say cash silver is trading at $32.00 and the futures are trading at $28.00. A trader might take physical silver that he has in inventory and sell it in the cash market, and then immediately take those proceeds and buy back and equal number of ounces in the futures market and take delivery. Since the same number of ounces in the futures market cost $4.00 per ounce LESS, he would end up with the same number of ounces in his inventory PLUS $4.00 per ounce in CASH in his pocket. If he and many other traders saw this condition and they all sold cash silver and bought the futures, this would, again, converge the spread between the cash market and the futures market.

The lynchpin that is holding this dynamic together and keeping the futures markets tied to the underlying cash market is the fact that the futures contracts are deliverable, and a trader can either deliver or take delivery of actual physical silver via his futures position.

Are we seeing a problem yet? The futures markets have lost their viability and trustworthiness because of the MF collapse and theft. At some point in the not-too-distant future, people everywhere are going to realize that the delivery mechanism is not reliable. Heck, just holding cash and/or positions in a futures account is no longer reliable. The the market itself is not reliable, traders will no longer attempt to arbitrage these basis spreads because the risk to the trader that the rug will be pulled out from underneath them is simply too great.

And in the metals markets, the delivery process itself is . . . um . . . shall we say, easily corrupted? When you "take delivery" of physical metals, it doesn't get sent to your house. All you get is a certificate saying that X number of ounces are being held in a certified vault somewhere with your name on them. After the MF collapse, that sounds like a joke, right? A CERTIFICATE with my NAME ON IT? Yeah. That really is how it works.

When the arbitrageurs finally lose all confidence in the markets, the cash market will decouple from the futures because no one will be willing to take the risk of having their money, positions and/or physical metals stolen/confiscated. If no arbitrageurs are willing to trade these spreads - no matter how wide they may become - and thus there is no force causing the cash and futures to converge, we will see the basis spreads become extremely wide. As people flee the futures markets, the futures prices will drop, while the cash markets hold steady or even diverge and actually rise as all of the former paper players realize that physicals are the only remaining game to be played.

Watch for this. Watch for the gold and silver futures to sell off as people walk away from paper while the online cash dealers, seeing that market demand for their physical inventory is robust, begin to ignore the futures prices and hold their prices steady or even raise them. When you see this basis decoupling and absence of arbitrage, lo, the end is nigh. A parabolic spike is coming.

Warren Pollock Interview & Other Stuff
Posted by Ann Barnhardt - December 14, AD 2011 8:16 PM MST

Just so you all know that I'm not alone in my sentiment and actually am speaking on behalf of other folks and brokers in the industry who simply don't have the soapbox that I have, here is an email from a second-generation floor trader in Chicago:

Ann Barnhardt,

Thank you for speaking up and calling it like it is. My father joined the Chicago Board of Trade in 1979. I joined the CBOT in 2009. We are customers of MF Global. The day they told me my money had been frozen I declared the futures industry completely dead. I grew up in the industry. I knew there were always thieves, mobsters even, in the business and I saw it from day 1 on the trading floor. But the depth of deceit has reached new lows.

MF Global and the CME violated the only principle that mattered in futures and anyone watching the farmers and ranchers testify yesterday should've seen that something has been broken beyond repair for them: TRUST! If the hedgers like you and your customers won't use the market then what are the speculators like me supposed to do? Well, I believe we're seeing it. The big specs have completely captured the trading venue through High Frequency Trading and are using it to fleece as many people as foolishly remain in the game where no bona fide hedgers operate anymore. The inmates not only run the asylum, they've set fire to it.

What most people don't understand is that when you open a brokerage account you allow your assets to be used to "borrow, pledge, repledge, transfer, hypothecate, rehypothecate, loan, or invest any of the Collateral"

Money quote:

...virtually unlimited leverage via the shadow banking system, in which there are practically no hard assets backing the infinite layers of debt created above, and which when finally unwound, will create a cataclysmic collapse of all financial institutions, where every bank is daisy-chained to each other courtesy of multiple layers of "hypothecation, and re-hypothecation."

MF Global: The SERIOUS Issues Reach Mainstream Media

How has the Obama administration contributed to this failure to achieve a robust and sustainable recovery?

Wall Street Journal:

1. The administration's most obvious failure was its misguided fiscal policies: the cash-for-clunkers subsidy for car buyers, the tax credit for first-time home buyers, and the $830 billion "stimulus" package...
   
   
2. A second cause of the continued economic weakness is the president's emphasis on increasing tax rates...
   
   
3. A third problem stems from the administration's lack of an explicit plan to deal with future budget deficits and with the exploding national debt. This creates uncertainty about future tax increases and interest rates that impedes spending by households and investment by businesses...
   
   
4. Finally, there is the administration's incoherent position on the international value of the dollar...

Read more at the The Economy Is Worse Than You Think

Your money, your life...and what's coming your way through 2012

Brilliant know-nothing that I am, I'd always assumed that Jimmah Carter's Community Reinvestment Act (CRA) which passed in 1977 was somehow behind the horrific economic collapse of 2008 that, conveniently, pushed a Marxist into the White House for the first time in U.S. history.

Here's why you should believe it, too:

If you carefully run through these posts and the accompanying comments, I think you'll see that every argument raised by the "Defend CRA at all costs" crowd has been refuted.

Here's How The Community Reinvestment Act Led To The Housing Bubble's Lax Lending

UPDATE: Contrary to the Obama narrative, however, it is not free-market capitalism at the root of the current mortgage industry crisis, but rather the very socialism Obama hawks. The historical record makes this fact unmistakably clear.

But it ain't over yet folks, it's gonna be a bumpy ride:

Mark Mobius, executive chairman of Templeton Asset Management’s emerging markets group, said another financial crisis is inevitable because the causes of the previous one haven’t been resolved...

Stansberry Research, as usual, goes much deeper. Here are some brief excerpts:

The Beginning of the Panic

On June 30, the Federal Reserve has pledged to cease buying U.S. Treasury bonds. This is the second time since the financial crisis it has intervened in the Treasury market in a major way. The program of buying new Treasury issues has been dubbed "quantitative easing II" (QE2).

We'd wager not one in 1,000 Americans has any idea (or at least any real understanding) of what has been going on in the market for U.S. Treasury bonds since the financial crisis. For the last nine months, the Fed has been printing up new dollars and buying huge amounts of newly issued debt from the U.S. Treasury – $600 billion of bonds. And these purchases followed a $1.75 trillion program of quantitative easing that ran from March 2009 to March 2010.

It is no exaggeration to say that a printing press has kept our economy going for the last two years. But what will happen when the printing stops?

We Can't Borrow Forever...and We Can't Stop

President Obama's economic mandarins now forecast the fiscal year 2011 deficit will come in at $1.6 trillion.

To put this figure in perspective for you, when Ronald Reagan took office, the entire national debt totaled less than $1 trillion. Even as late as 2002, the national debt was only $6 trillion. Obama's administration will almost surely borrow more than $6 trillion in only his first term. In four years, Obama will double our entire national debt from its pre-financial crisis levels.

This has never happened in peacetime.

A Hard Reality

Rather than face these unpleasant facts and consider where they are leading us, most people continue to think, "It can't happen here, this is America."

Meanwhile, our country has been depending on a printing press to make our economic system work. When is the last time that happened in America? (Hint: the Civil War.)

How many other things most people didn't think would ever happen in America have happened recently? What about the collapse of our investment banks, the bankruptcy of General Motors, the liquidation of Fannie Mae and Freddie Mac, the failure of AIG, hundreds of banks being seized, millions of homes in foreclosure, real unemployment rates close to 20%. We could go on.

As we frequently point out to our critics, the question isn't when this crisis will begin – it started in 2008. The question is, when will it end and how bad will it get before it does?

Two Secrets About U.S. Finances You Won't Read Anywhere Else

Most people misunderstand two things about the U.S. financial situation...

First, the U.S. government's official debt burden might not yet have reached the "red line" of imminent default. But our entire economy's enormous debt burden makes it nearly certain we will default on our federal debt and many of our private debts, too.

The U.S. is the world's largest debtor. As a whole, Americans owe a total of nearly $56 trillion dollars (almost 400% of GDP). That's federal, state, municipal, corporate, and private (mortgages and student loans) debts. The debt service on our total obligation is $3.6 trillion a year. It's hard to put that number into context because it's so large. Think about it this way – It's roughly the same amount of money as the federal government's entire budget.

To the extent our debts fueled past consumption (homes, cars, credit cards, health care, etc.), they are unlikely to spur future economic growth. That's not to mention a considerable portion of these payments belongs to foreign investors, folks who are typically more interested in building their next factory in Bangladesh than in Bangor.

When you combine this "debt tax" – aka interest – with the size of our actual tax burden (about $4.4 trillion when you combine federal taxes with state and local taxes), you can see pretty clearly why our economy is struggling.

We're spending half our annual GDP on taxes and interest.

Imagine if you had to spend half of your family's income on taxes and interest. How would you rate your credit risk? What's the likelihood of default in that scenario?

More important, given our current federal deficits and the looming entitlement crisis we face (total unfunded future liabilities in excess of $100 trillion)... How is it possible to expect Americans will be able to afford to pay more taxes? What would happen to our budget if interest rates rise because of inflation, which seems inevitable?

We don't think many Americans – even sophisticated investors – have considered these numbers. Our foreign creditors will realize they have no chance of being repaid in sound money. Americans simply cannot afford debt service, never mind principal repayment. There are signs they already recognize this...

The Dynamics of a Bond Market Collapse

By the end of 2012, our national debt will likely exceed $17 trillion. Let's assume our average interest increases to 4.4% – half the rate we believe investors will eventually demand. That works out to an annual interest expense of almost $750 billion. That's more than we spend on defense or Social Security. Interest expenses would leave the government spending almost 25¢ of every dollar on interest payments.

Does that sound wise or reasonable to you? Given these expenses, some of our creditors would become reluctant to "roll" our debt into the future by offering new loans. This could cause a serious problem for the U.S. Treasury. This is how the dollar dies.

Gambling on Short-Term Financing

Portugal's government recently suffered a debt default. The country required a bailout by the European Central Bank (ECB) because it had too much short-term debt coming due and not enough lenders were willing to extend these loans at affordable rates. Lots of economists criticized Portugal's borrowing strategy because much of its debts were short-term.

Apparently, these folks haven't bothered looking at the U.S. Treasury's debt maturity curve. We have. The numbers are so shocking, we expect most of our subscribers simply won't believe us. You can read all of the numbers for yourself, if you'd like. Bureau of the Public Debt includes all the numbers in its Financial Audit (which you can read on its website.

Feel free to read all 35 pages... Or focus on just this piece of data. It's all you really need to know: 61% of all the marketable Treasury debt held by the public will mature within four years. Thus, over the next four years, the U.S. Treasury must either repay or refinance more than $1 trillion in existing debt each year – not to mention additional deficit spending of at least $1.5 trillion. For us to avoid a default, the U.S. Treasury may have to borrow or refinance as much as $10 trillion in the next four years.

That would double the amount of U.S. Treasury bonds currently trading in the world's markets.

Think about that for a minute. Then, consider the decades-low yields in the Treasury market today, which would surely rise to accommodate this enormous increase in supply.

Now, try to arrive at any sort of scenario that ends well for today's U.S. Treasury bond market investors. We can't...

Keep in mind that these brief excerpts have a much broader context in the newsletter, and many more details, but I think they will give you an idea of what is coming.

Be prepared.

UPDATE: Some important references

www.fms.treas.gov/annualreport/index.html

www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/tables.pdf

www.whitehouse.gov/omb/budget/Historicals/

The Fair Tax Act versus A Personal Accounts Plan (for Laymen)

by Dick McDonald
Ownership Society Institute
www.RiseUpAmerica.us

Rather than get into too many complicated inter-related issues, I am writing this to make crystal clear the main (but not all) of the differences between the highly touted Fair Tax plan and the less understood personal account plan I am supporting and writing about in my book “Make the Poor Rich.”

The Fair Tax Plan

The Fair Tax Plan is very attractive. It scraps all Federal taxes and replaces them with a 23% consumption tax. It eliminates the IRS. It eliminates the need to file income, estate, gift, excise and payroll tax returns. The Fair Tax abolishes them all. Your yearly trek to your tax accountant is eliminated and H&R Block evaporates. No need for copious tax receipts and support; all that is eliminated. Tax cheats who failed to pay their taxes in order to buy more stuff get caught in buying that stuff because the Fair Tax is a consumption tax.

The Fair Tax is based on the assumption that it is fairer to tax consumption than net taxable income which is based on ability to pay. The richer you are the more you pay in our 93-year old system. The Fair Tax doesn’t care how rich or poor you are it just imposes the tax on the new products you buy. It rebates (called a pre-bate) the 23% tax on the necessities the poor buy and exempts them completely from tax as the payroll tax will have been abolished. This is a good thing for the poor, but hardly a bonanza as they are prone to consume every dollar they get.

Under the Fair Tax the rich guy pays nothing except the 23% tax on that which he personally consumes. As he has most everything already, the portion of his income and wealth spent on taxable consumables will only be a fraction of the percentage the poor and middle class spend on taxable consumables. Granted the rich man will invest in the market and create jobs and economic activity which will up overall consumption. That is a good thing but I’m afraid the ordinary taxpayer will complain that the rich get richer under such a plan and the poor and middle class stand still and pay the freight.

The Personal Account Plan

This tax reform ”personal account” plan eliminates all payroll taxes going to the government and diverts them (the 15% which is already withheld) into a taxpayer’s own personal investment account to grow over his 40-year working life by compounding into a sizeable nest egg. As compared to the Fair Tax, the account cannot be reached until retirement as the plan calls for the transfer of the funding of retirement from the government to the individual and the government doesn’t want to have people be irresponsible and spend all their savings and come back as a ward of the state. The nest egg is sufficient in size that just the income off the nest egg will provide the retiree with an affluent retirement. At death, his sizeable estate can be passed on to his children. No other taxes are repealed. However with the repeal of the payroll tax, half of the national budget is eliminated and the need for half the taxes. As those taxes are invested in the economy a substantial increase in economic activity is anticipated.

Comparison of Some of the Features:

• Simplicity
  
  Nothing beats the Fair Tax for simplicity. It eliminates and abolishes all Federal taxes and replaces them with one simple consumption tax. It eliminates the need for a sizeable IRS. It reduces the need for complicated accounting and supporting documents. It eliminates the need for tax returns and the complicated determination of taxable income. Nothing could be simpler than the Fair Tax.
  
  By comparison there would be more complications with a personal account as all taxes stay the same and payroll taxes still have to be determined and paid into an individual’s personal account. In the present Social Security system the government takes care of funding retirement and old-age medical needs. Under personal accounts this responsibility falls on an individual’s shoulders.

  Advantage: Fair Tax

• Limiting the Size of Government
  
  The Fair Tax would substantially reduce the Government’s need to administer so many taxes but HR 25, its empowering legislation, makes this “consumption tax” revenue neutral. In laymen’s terms that means that if the government collected $2.8 Trillion in Federal taxes in 2006, the Fair Tax would be designed to tax the “consumables” subject to this Fair Tax so as to collect $2.8 Trillion in 2006. Therefore it doesn’t limit the size of government to any significant extent. Politicians would still retain the right to allocate that $2.8 trillion of tax receipts at their whim.
  
  The personal account plan would cut the Federal government in half. The Federal budget would fall from $2.8 Trillion to $1.4 Trillion overnight. As the government would no longer be charged with the responsibility of funding retirement and old-age medical needs, it no longer would be in the entitlement business. It would no longer be playing nanny to its citizens.

  Advantage: Personal Accounts

• Tax Cuts
  
  As the Fair Tax is revenue neutral, its imposition would not cut the nation’s tax burden. It would merely shift that burden among the various classes of taxpayers. The poor would be exempt from all taxes and the wealthy exempt from income, dividend and capital gains from which most of their wealth presently flows. Those whose income is spent on consumption over the poverty line would be hardest hit. However, as the Fair Tax is not designed to cut taxes, it is not a vehicle for tax cuts.
  
  As far as tax cuts are concerned, the imposition of full-blown personal account legislation would result in the biggest tax cut in the history of the planet. Eliminating the need for government to fund retirement and old-age medical costs would result in a $1.4 Trillion tax cut.. Unfortunately for those who want to spend their tax cuts now, that money will be put away for them to grow into millions over the years and will not be immediately available. They will be able to direct their investment into pre-designed indexed funds but that is all. Still it is a massive tax cut.

  Advantage: Personal Accounts

• Cost and Logistics of Transition and Implementation
  
  The cost and logistics of transitioning to the Fair Tax would be daunting logistically but not too costly. As the plan is revenue neutral, the federal government would still be raking in the same dough; they would just be in a scramble as to whose ox is gored changing job descriptions and desks.
  
  The transition to a full-blown personal account modality would be painful to those who look at the problem linearly. Today the payroll tax receipts are used to pay retirees. Upon implementation of personal accounts that source of funding disappears as those funds will be placed in personal accounts. The question then becomes how do we fund the benefits of those in the system now and those whose accounts won’t have sufficient time to mature into sufficiently large nest eggs.
  
  In my book, “Make the Poor Rich,” I have at least eight methods to easily accomplish this. None may be needed, however, if history repeats itself. In the 1980s when Reagan cut the tax rate from 70% to 28% the result was that government “income” tax revenues doubled because of increased economic activity. If that happens again and there is good reason to believe it will as the stimulus of personal accounts will pale to insignificance the tax cut of the 1980s then such increase in revenues will be more than enough to pay for the smooth transition to personal accounts.

  Advantage: Fair Tax

• Unfunded Debt Reduction
  
  The Fair Tax hopes to generate sufficient activity to make a big dent in the $13.2 Trillion unfunded Social Security debt. It makes no provision for the looming $30 to $50 Trillion of Medicare liabilities. I personally am unconvinced that it adequately addresses the Social Security problem as the Fair Tax is revenue neutral and present revenues are not adequate to pay the ever-increasing unfunded liability much less reduce the existing liability. It would be necessary to run enormous surpluses under the Fair Tax to even begin to address these unfunded entitlements. Under Fair tax these liabilities remain a severe problem.
  
  The personal account plan abolishes both the Social Security and Medicare unfunded liabilities on the date of the plan’s passage. They are written off the books with the stroke of a pen. Congress is not obligated to fulfill those promises and they have proven that in the Supreme Court. They have no contractual obligation to retirees. They can repeal any laws without consequence.

  Advantage: Personal Accounts

• Retirement Funding
  
  The Fair Tax makes no provision for retirement funding. Taxes presently collected to pay retirees will remain the same and substantial benefit cuts or an increase in the 23% consumption tax will be needed to keep those programs afloat. I don’t see any significant change in the dynamics of a revenue neutral consumption tax that would in any way ameliorate the problem.
  
  The personal account plan has been devised to make the poor rich and able to afford upon retirement an affluent lifestyle and the best medical coverage money can buy just off the income from their nest egg. Your $60,000 a year truck driver retires with a $4.8 Million nest egg and a $40,000 a month retirement check (2006 dollars) without invading his nest egg. He can afford a magnificent lifestyle and buy the best medical care money can buy.

  Advantage: Personal Accounts

• Crime, Discontent and the Pursuit of Happiness
  
  The Fair Tax and its abolition of all the taxes and the bother they create will do wonders for the people. It is a step up in the pursuit of happiness. I question, however, its effect on crime and discontentment. I think it will only marginally improve either of the latter. Its revenue neutrality bespeaks of its failure to lift all boats.
  
  Personal accounts have been designed to make the poor rich; even those who by circumstance or environment can’t compete for the big bucks. It carries them into a paradigm in which they can achieve the American Dream by merely working to survive. As most crime is driven by the lack of money, personal accounts will do wonders in reducing crime. As a disincentive for bad behavior for those who commit crimes for money we will subtract their incarceration costs from their personal accounts when jailed. As the poor get wealthier, both the tenor of life and its crisis will tone down and hopefully mute. Personal accounts and the security they provide should be the ultimate reward in the pursuit of happiness.

  Advantage: Personal Accounts

• Private Sector Retirement Funding
  
  The Fair Tax abolishes the payroll tax and provides Social Security and Medicare coverage assumedly at the same level presently paid. As those amounts are insufficient to provide just enough to avoid starvation and homelessness, I don’t see the Fair Tax helping the private sector fund retirement. As it presently stands business is abandoning fixed retirement benefit plans for 401(k)s which have no mortality pool (not payable until death). The Fair Tax should provide a cushion for corporations to provide retirement plans but I doubt they will do so considering the cost that must be added to their products and services.
  
  Personal accounts are designed to provide in one place all the retirement funding an American needs. He won’t need funding from his employer or employers. He can scrap his 401(k), his IRA. There will be no need with the nest egg he will accumulate under the personal account plan.

  Advantage: Personal Accounts

• Wealth Creation
  
  The Fair Tax is not designed to create wealth. It is revenue neutral and neither cuts overall taxes nor provides for an increase in the capital pool (here we assume the rich will be freer to invest but it should be offset by a reduction from other classes who pick up the shortfall in tax collections).
  
  Personal accounts have been devised to create enormous personal wealth for American citizens; even the poor and uncompetitive will become wealthy. . Under this plan the overall wealth of America will geometrically rise to supply the world with the capital it needs to improve the overall standard of living of the oppressed and unfortunate of underdeveloped nations. Advantage: Personal Accounts FairnessIf by fairness one wants to rid themselves of bothersome details, the Fair Tax is your number. However, as between classes of taxpayers I have concluded the Fair Tax is anything but “fair”. Were it not revenue neutral and created huge surpluses with which to liquidate our unfunded debt. I would feel differently. As it is, it loses my vote. This is of course predictable as it is my passion to implement personal accounts at 15% of income and wages and I am exceedingly biased. I leave it to the Fair Tax crowd to challenge my findings and my conclusions. I doubt they will be sitting on their hands.

  Advantage: Personal Accounts

• Legislative Potential
  
  Neither Fair Tax nor Personal Accounts legislation will go down without a massive battle with the establishment as both are designed to free the individual from the yolk of government. The forces of government are massive and impressive. Fortunately they already have personal accounts which I will use like a rapier to impugn their character and honesty with the American people. I predict they won’t get away so easily this time;. George W. Bush won’t be running interference.

  Advantage: Personal Accounts.

Here are the top 7 factors we believe MUST lead to the end of the global U.S. dollar standard – what we call THE END OF AMERICA

Stansberry Research published this in January (a section of their paid monthly newsletter) and said to forward this to anyone who might be interested:

1) The price of gold has gone up for 10 years in a row.

We can’t think of another market that’s ever risen for 10 consecutive years. This is a historical anomaly, and it means something has gone badly wrong with the world’s reserve currency (the U.S. dollar). Markets, if left to find their own equilibrium, will naturally fluctuate. Gold isn’t fluctuating. Its steady move up proves something strange is happening to our money.

2) Our government’s deficits are out of control.

The government’s annual deficits now routinely surpass $1 trillion. The first $1 trillion deficit came in 2008 – and the government explained it away as the consequence of the financial crisis. But we racked up another $1 trillion deficit in 2009 and yet another in 2010. We’ll have another in 2011 and so on. Our national debt has doubled since 2005. We’ve borrowed more money in the last five years than we had in the entire history of our government until then. This isn’t sustainable.

3) The government cannot increase tax revenues enough to cover our spending or repay our debts – ever.

Our annual deficits have become completely unlinked to taxes. Total federal income taxes and corporate taxes generate $1.1 trillion a year in revenue, and we still ran a $1.3 trillion federal deficit last year. So even if we increased tax revenues by 100%, we would still have fallen $200 million short. This is totally unsustainable.

4) Special interest groups – particularly government unions – are looting our Treasury.

Self-serving special interest groups have completely hijacked government spending. We now spend $200 billion a year on federal pensions. We’re spending another $450 billion on welfare. This spending, combined with our defense spending ($700 billion), exceeds total federal tax revenue and leaves nothing to pay the $200 billion in interest on our debt, nothing to pay for actual government services (like roads), and nothing to pay towards the inevitable Social Security/Medicare shortfall. Remember…most voters do not pay taxes. It’s politically impossible to reform this interest group-based spending. These people are robbing the Treasury. They will cause our currency and eventually our government itself to collapse.

5) We’re printing money just like the banana republics we used to mock.

To support the government’s runaway spending, the Federal Reserve is now continuously buying government debt. This process was commonly called “monetizing the debt” or, more simply, “printing money.” The Fed creates new money to buy government bonds. This kind of Ponzi financing destroyed every previous experiment with paper money. If printing money were truly good for an economy, Zimbabwe would be the world’s wealthiest country. Perhaps even more worrisome than the practice itself is the leadership of the Fed, which has alternately defended this practice and then denied using it. If the Fed continues this practice, it will eventually cause a global run on the dollar that will destroy the value of our currency overnight.

6) We can’t repay our debts. Total debt outstanding in the U.S. currently exceeds $55 trillion.

That’s $681,165 in debt per U.S. family. There is simply no way to repay (or even maintain) debt of this magnitude using the income of the average American family, which is slightly less than $50,000 per family. Interest alone on these debts (based on a 5% rate) would total $34,000 per family every year. Total debt in the U.S. economy is unsustainable and can’t be financed without printing vast new sums of money.

7) Shockingly, new debt issuance in the U.S. is soaring, with the lowest-quality debtors borrowing record amounts.

Despite all the evidence that the U.S. economy carries far too much debt, both public and private debt issuance soared to new record levels in 2010. Overall, more than $3 trillion in new corporate debt was issued last year – the second record year in a row. And junk-bond issuance set a new, vastly higher record. In 2010, 509 speculative-grade corporate borrowers sold $287 billion worth of new debt. That compares to the previous record (2009) of $167 billion. Our economy has become so warped by its debt load, it cannot function without ever-larger amounts of debt. Anyone looking at these numbers must realize this is not safe and will not last long.

Why No One Else Is Issuing These Warnings

You may read these facts and ask, “Where are the ratings agencies? Why does a small newsletter based in Baltimore, Maryland seem to have the jump on everyone in Washington and most of the people in New York? Why aren’t these facts in the newspaper? On the news at night? In magazines?”

The answer: Government spending now makes up more than 40% of our economy. No big business can afford to offend its best customer. And most also depend on the government for protection from competition, in the form of licenses or permits.

Stansberry Research

VIDEO: THE END OF AMERICA

SAVING OUR ECONOMY

LACA (Los Angeles Conservatives Alliance) interviews Richard McDonald

Reseda, CA 1-11-11

Over the next eleven months, LACA will be featuring a series of articles by the Ownership Society Institute. They will outline a plan the Institute calls Rise Up America (RUA). This plan has been designed to change the way the United States government works in a manner that will substantially increase the material wealth of the nation and each individual as well as their social well-being.

LACA: Our series is authored by Dick McDonald (DM). Dick believes conservatives should adopt RUA to solve many of the economic and social problems the country faces. Please tell us something about yourself and your RUA plan.

DM: I am retired now but I spent my working life as a tax man helping rich people avoid taxes. As a young CPA working for an international accounting firm I did the personal and corporate income taxes for very rich clients like Jimmy Stewart and J. Paul Getty. After ten years there I spent the next 30 years designing and operating tax shelters.

For the last six years I have been perfecting the RUA plan that does for the poor and middle class what Ronald Reagan’s so-called “trickle down” economic theory did for the rich. In other words it creates wealth for the little guy. If adopted it would create enormous wealth for the country as well.

LACA: Dick your background sounds impressive but just how does doing tax work for billionaires equate with creating wealth for poor people?

DM: That is simple. It is so simple that it escapes most people’s radar. I use the same tax shelter for the poor and middle-class people as a tax man uses for the ultra rich – the non-taxability of appreciation in the value of stock. Think about it. Bill Gates is worth $54 Billion in the latest Forbes survey. He didn’t pay income taxes to create after-tax wealth of $54 billion. His wealth is in the stock of Microsoft. He didn’t pay tax on the appreciation in that stock.

LACA: I see where you're going – most people don't think of appreciation as a tax shelter. I see how rich people use it but how can your plan generate wealth for the poor. They don't have the money to invest in stock.

DM: You're right – they don't – and that is where my plan begins. Today the country needs a kick in the economic pants. We need jobs and a better growth rate. But no one is hiring and few are investing in new products and services. So my plan calls for an annual investment (from the private sector) of over a trillion dollars in the stock market. In the first year it should create millions of jobs and jump the country's growth rate towards 10%.

LACA: Dick that's a great idea but where are the poor and middle class going to get new investment capital of a trillion dollars each year.

DM: Here again that is relatively simple – we privatize the Social Security, Disability and Medicare programs, place the 15.3% of payroll taxes in each taxpayer's personal investment account and have it immediately invested at their direction and for their sole benefit into secure index funds for their 40-year working life.

LACA: Wow – that brings up so many questions we don't have time to cover all of them today. But let's take some obvious ones. First there is a great fear of investing in the stock market. How do you overcome that fear.

DM: First of all the average American household makes over $50,000 a year and pays slightly over $7,500 in Federal payroll taxes. Over a 40-year working life they would have invested $300,000 with the government. However such taxes invested weekly in the stock market grow into a $4 million nest egg through accumulation and compounding. The rate of return we use is the same 10% average rate of return the S&P 500 has returned in long-term 40-year investments since 1871.

Now when the recent stock market crashed and the $4 million dropped to $2 million, the taxpayer only had invested $300,000. He was still way ahead of the game. As the stock market has gone from 12,000 on the Dow to 6,000 and returned to 11,500 the taxpayer's account has come almost back to $4 million. The citizens understand simple arithmetic – they just have to be informed.

A $4 million stock account should throw off a $33,000 a month Social Security check which will make a mockery of the $1,300 the government presently pays. On top of that the taxpayer is worth $4 million whereas under our present system they get no nest egg.

LACA: I'm sorry we only have space for one more question. Presently the payroll taxes collected by government are used to pay current retirees. By abandoning these entitlements what happens to current retirees and where will the money come from to pay them.

DM: Our plan will immediately reduce the over $100 trillion unfunded entitlement debt to a manageable $6 to $8 trillion as the growth in each account will eventually eliminate the need to fund retirees. In the meantime we can fund the benefits by privatizing unneeded departments of the government, selling and leasing back government properties such as lands, buildings and rights (oil, airtime) and a myriad of cost cutting steps. We also can borrow a little as we have made such a massive dent in the overall debt of the country.

The increase in economic activity will swell to the point that the private sector will open jobs up to absorb the government workers displaced by privatization. It can be done.

LACA: I'm sorry we'll have to continue next month. Where can the readers presently get more information about RUA.

DM: They can go to www.ownershipsocietyinstitute.com. Your readers should be aware that many benefits emanate from such a plan including cutting the size of the government by 40%.

666: will you stay?

Go to the bathroom, get some water, and pay attention: This will scare the living daylights out of you: Stansberry Research

UPDATE: Why The SEC Sued Me – And Why You Should Care

Now THIS is Armageddon

RedState: What the Democrats are hiding and why they are really scared...

The job hopes of many are too important to be nailed to the cross of this economic ideology.

Things to remember (and a shocking discovery inside Obamacare):

Those who earn more than $200,000 annually are among the ones who create most of the new jobs and fund new investment—the engines of economic growth. Without these jobs and new investment, the economy will be smaller and throw off less tax revenue...

People will go to great lengths to avoid paying high tax rates, including reducing work effort and taxable savings and investments, or even finding illegal means to avoid the tax collector. But it takes time for them to do so...

The Obama administration also ignores the fact that many upper-income people obtain significant portions of their income from capital gains and dividends. The capital gains tax is going to increase to 20% from 15% in 2011 and, thanks to ObamaCare, to 23.8% in 2013. The tax on dividends is going to increase to a maximum rate of 39.6% in 2011 and once again, thanks to ObamaCare, to 43.4% by 2013.

These rates are self-defeating. The nonpartisan Institute for Research on the Economics of Taxation, headed by a former senior U.S. Treasury economist, Steve Entin, has recently published studies on the effects of the Obama administration's tax increases on capital gains. Their analyses show that increasing the capital-gains tax rate would result in lower tax revenue and higher deficits. The studies are also congruent with the historical experience of the last 40 years...

Tax Cuts and Revenue: What We Learned in the 1980s

Take some profits before The Tax Man Cometh

Excerpt from Larry Kudlow at CNBC:

...the Tax Man is coming to town on January 1, 2011. Taxes are going up across-the-board. So investors should seriously consider selling into any stock market strength ahead of the tax deadline. Doing this will enable investors to lock in a lower capital-gains tax this year and beat next year’s higher rates.

It’s a lesson investors literally cannot afford to forget: If after-tax investment returns decline, because the key capital-gains tax rate and other investment taxes go up, the future value of stocks is damaged.

In other worrisome news, despite some improvement in consumer sentiment, U.S retail sales fell on Friday for the first time in eight months. That was something of a shocker...

Read the whole thing

Amid the Democrats' struggle to jam their health care bill through the House, but in recent weeks U.S. Treasury bonds have lost their status as the world's safest investment

Bond Markets Reflect the True Cost of Obamacare

Jim Cramer on Obamacare: "It is the single biggest impediment to the stock market going higher."

VIDEO:

First, it is the single biggest impediment to the stock market going higher,” Cramer said. “And a lot of this has to do with what's not being talked about enough with how it's going to be paid and also about what it will do to small business formation. This bill is a disaster for both.

Will Obama-Care Topple the Market?